Frontier Markets News, March 17th 2024
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By Ken Stibler, Noah Berman and Nojan Rostami. Executive editor: Dan Keeler
Africa
Mozambique to channel natural gas revenues to SWF
Mozambique announced legislation on Wednesday to direct 40% of state revenue from natural gas exports into the country’s new sovereign wealth fund. Mozambique will be able to use the rest of the revenue to fund its operating budget.
The indebted southeast African nation expects natural gas exports to generate more than $90 billion in revenue in the coming decades. That revenue will be integral to Mozambique’s efforts to repay its creditors, including the IMF.
Introducing the sovereign fund governance law was a condition for the IMF to resume lending to Mozambique. The fund—along with many other creditors—stopped lending to Mozambique in 2016, when it was revealed that the country had not disclosed all of its debt to the IMF. Mozambique defaulted later that year.
Egypt wins more aid
Egypt secured $11 billion in aid this week, complementing an $8 billion arrangement with the IMF it clinched last week.
The World Bank is providing Egypt $3 billion and the EU is providing an $8 billion package of grants and loans for the country. The international financing efforts come on the back of a series of reforms that Egypt’s central bank made last week, including the removal of a currency peg and a six percentage point interest rate increase.
In addition to funding Egypt’s energy sector, the EU agreement directs support toward fortifying Egypt’s border with Libya, through which many migrants are passing to reach Europe, the FT reports. The EU has previously sought to curtail migration to the continent through economic incentives for transit countries such as Mauritania and Tunisia.
The flood of announcements is likely to trigger a rush to invest in Egypt’s bonds, Bloomberg reported last week.
Wealthy countries cancel Somalia’s debt
The group of wealthy creditor countries known as the Paris Club agreed on Wednesday to cancel almost all of Somalia’s debt. The lenders, including the US and Russia, said they would forgive $2 billion in debt—99% of what Somalia owes externally.
Most of the debt, about $1.2 billion, was forgiven under a joint program run by the IMF and World Bank; an additional $815 million was forgiven on “a voluntary and bilateral basis,” according to a Paris Club statement. The cancellation will give Somalia access to international financial markets from which it has been excluded for three decades, The Guardian reports.
Somali officials welcomed the deal. “Achieving full debt relief will transform Somalia’s future and allow our government to create fiscal space for basic public services,” Somali finance minister Bihi Egeh posted on X.
Asia
Thai election authority seeks to dissolve last year’s most popular party
The Thai Election Commission announced on Tuesday that it will move to disband the country’s leading opposition party.
The pro-democracy Move Forward party won the most votes in legislative elections last year, but its efforts to form a governing coalition were stifled by unelected senators appointed by the country’s powerful military, leaving the party outside of government.
Move Forward ran on amending Thailand’s “lese majeste” laws, which prohibit criticism of the country’s monarchy. The election commission said this week that such a platform constituted an intent to overthrow the monarchy, Nikkei reports, and therefore the party could no longer exist.
Philippines to get $1b investment from US companies
US companies will invest more than $1 billion in the Philippines, US Commerce Secretary Gina Raimondo said in Manila on Monday.
Raimondo made the announcement during a two-day trade and investment mission to the Philippines that included executives from 22 companies, including Google, Microsoft, and United Airlines. The investments will be dispersed across industries such as solar energy, electric vehicles, and digitization, The Diplomat reports.
The investment bonanza may not be limited to the Philippines. In Thailand on Wednesday, Raimondo said that US firms were prepared to “supercharge” their investments in the country, pointing to it as a leading contender for multinationals seeking to diversify their supply chains, Reuters reports.
The moves highlight increasing US efforts to fortify existing security relationships in Southeast Asia through expanded economic cooperation. The US signed a formal defense treaty with the Philippines in 1951 and with Thailand in 1954.
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Middle East
Multinationals heed Saudi Arabia’s demand to move HQs to Riyadh, but financial firms double down on UAE at ‘turning point’
Saudi Arabia’s ultimatum to foreign firms to move their regional HQs to Riyadh by January 2024 seems to have paid off. The FT reports this week that 350 multinational companies, including giants such as Boeing, PepsiCo, and Unilever, have complied. The ultimatum, called “Programme HQ,” required foreign companies receiving Saudi government business to relocate within the Kingdom in order to continue receiving business from the government and its many publicly owned, privately operated subsidiaries.
The FT reports that financial services firms, namely investment banks, are holding out on compliance, citing the Kingdom’s lack of an offshore, independent financial hub with its own business-friendly regulatory framework—such as the Dubai International Financial Centre in neighboring UAE, which is thought to be Programme HQ’s target. Rather than losing out on financial services business, rival UAE has seen huge growth in its banking, insurance, and investment management industry this year, as firms flock to open HQs in Abu Dhabi and Dubai.
In February, the UAE was removed from the financial crimes “gray list” after apparently making progress on compliance and financial crime reforms. Firms representing some $450 billion of assets under management had already moved to establish a presence there after the UAE’s removal from the list was originally flagged in late 2023. Some 125 other firms are reportedly considering moving there.
Turkey and Iraq collaborate on security and energy—and anti-PKK campaign
Turkey and Iraq this week held high-level talks on security cooperation, announcing in a joint statement that they see the PKK, a Kurdish political and armed movement, as a “security threat for Turkey and Iraq.” The talks were followed by an Iraq National Security Council decision to ban the PKK, considered a major diplomatic coup for Turkey, which has long designated the group as a terrorist organization.
The agreement to jointly crack down on the Kurdish movement possibly helped secure other major agreements on trade and energy, particularly major trade routes connecting Iraq’s southern port and oil infrastructure to Europe via Turkey, Bloomberg reports. The two neighbors are also reportedly seeking investment from GCC members for a $17 billion transportation corridor connecting the Gulf to Turkey (which will run through what is currently Kurdish territory) that would open an alternative Europe-Asia transport link to the Red Sea.
Iraq will also benefit from the possible restart of oil shipments to Turkey to the tune of some 500,000 barrels per day, though expanding operations against the PKK presents a new risk. Turkey reportedly seeks a 40km “security corridor” along the border, and is planning a military offensive this summer to enforce it.
Oman plans ‘climate-resilient’ redesign of Muscat’s waterfront
Oman’s Ministry of Housing and Urban Planning has tapped international design firm Zaha Hadid to redesign 3.3 million square meters of Muscat’s waterfront, directing them to create a “sustainability-led design emphasizing climate resilience.” The development will house nearly 70,000 people in mixed residential, commercial, government, and public spaces, and is part of a broader housing and land reform plan meant to accommodate the Sultanate’s growing population–which is expected to double by 2040.
Earlier this year, the government unveiled its “Housing For All” initiative, which, on top of ambitious plans for redesigning Muscat and other urban centers, set a 2024 target for distributing 1,000 government residential plots, establishing 1,200 housing units within the housing assistance program, and securing 1.9 billion rial ($5 billion) for housing loans with the Oman Housing Bank.
Europe
Romania offers billions in renewable subsidies amid broader energy diversification
The European Commission has approved a €3 billion package to accelerate onshore wind and solar farm development in Romania Margrethe Vestager, the EU’s competition policy chief, lauded the scheme’s potential to decrease Romania’s dependence on imported fossil fuels while maintaining fair competition within the single market.
The agreement will include compensation for intensive energy users impacted by high electricity prices, and simplify the procedure for private businesses participating in renewable energy investments.
Romania’s new renewables push is part of a broader strategy among Eastern Europe’s largest economies to diversify and green their energy sources amid competitive pressures on domestic manufacturing and ongoing energy security concerns.
Latin America
Argentina struggles to find a clear economic narrative
Argentina successfully completed a $65 billion peso debt swap this week, providing substantial debt relief for the medium term and setting the stage for a full removal of currency controls. The move was lauded by investors, but it was overshadowed by the Senate’s repeal of President Javier Milei’s ambitious deregulation push, which dealt a major blow to a key plank of his reform program.
- S&P downgrades Argentina’s local-currency rating (Mercopress)
- Argentina and IMF discuss new loan program (Latin Finance)
While the debt restructuring unlocked newfound fiscal breathing room, the rejection of the “mega decree” raised doubts about the administration’s ability to implement sweeping market-oriented reforms in the face of entrenched political opposition.
Bloomberg suggested Milei’s shock therapy was “teetering on the edge of collapse,” despite momentum provided by falling inflation, rising capital inflows and improving macroeconomic indicators.
Optimism on Latin America grows, but performance set to be mixed
Latin America is riding a wave of renewed optimism, amid strong bond performance, US rate-cut expectations, and an ambitious proposal by the Inter-American Development Bank (IDB) to sharply increase its lending capacity. Capitalizing on this favorable climate, Latin American sovereigns are actively issuing debt and exploring innovative financing avenues, such as thematic bonds tailored for sustainable and impact investors.
However, the region’s economic performance will be uneven, ratings firm Fitch predicts. While countries such as the Dominican Republic and Paraguay are expected to outperform, the IDB expects regional growth of just 1.6% in 2024.
Persistent structural challenges, including low productivity, infrastructure deficits, and deteriorating public security, continue to weigh on Latin America’s overall economic prospects. Despite the headwinds, Latin America’s traditional strengths in natural resources—particularly its substantial lithium reserves crucial for the global clean energy transition—position the region advantageously.
Global
Finance firms push back against New York’s proposed sovereign debt law
Representatives of the financial industry, including the Institute of International Finance (IIF), have warned of the effects of a New York State draft law that seeks to modify rules governing emerging-market bonds. The Sovereign Debt Stability Act would overhaul the restructuring process, increasing oversight and limiting private bondholders’ recoveries for nearly $800 billion of sovereign debt governed by New York law.
While debt forgiveness campaigners see such reforms as critical to make it easier for highly indebted governments to receive badly needed debt relief, industry groups warn that the changes would allow sovereigns to hold bondholders “hostage”, potentially prompting investors to demand higher interest rates for EM bonds. Eight groups representing the financial industry warned that such changes would trigger an immediate decline in sovereign bond prices, leading to losses for investors.
The industry groups also argue that the increased borrowing costs for developing nations would hinder their ability to access capital. The financial industry has historically exaggerated the effect of such legislation, but the New York proposal would likely see investor preference shift towards London-issuance.
What we’re reading
Ghana plays for time on debt restructuring as bondholders demand value recovery (The Africa Report)
Nigeria reopens land, air borders with Niger, lifts other sanctions (Premium Times)
Nigeria: Central bank shift to orthodoxy dims commercial-bank earnings outlook (The Africa Report)
Nigeria blames crypto for real-life currency crisis (WSJ)
Senegal opposition coalition promises new currency and revamp of oil contracts (Reuters)
Turkey, Iran, Morocco seek greater role in Sahel following French exit (AFP)
Central African bloc lifts Gabon sanctions (Reuters)
Kenyan Shilling Goes From Laggard to Leader in One Quarter (Bloomberg)
Somali pirates seize ship as global naval forces focus on Houthi threat (FT)
Egypt brokers Sudan peace talks as it tightens its border (The Africa Report)
Angola plans foreign-currency bond sale (Bloomberg)
South Africa sets ambitious timeline to end rolling blackouts (FT)
Trafigura, Mercuria switch ship bunkering to Mauritius amid attacks, tax dispute, sources say (Reuters)
Africa internet outage risks leaving millions offline for weeks (Bloomberg)
AfDB chief criticizes loans tied to Africa’s natural resources (AP)
Big Oil expands in Africa despite challenges (Oilprice.com)
Bangladesh offers ‘win-win’ deals for offshore gas exploration (Nikkei)
Pakistan’s X blockage puts new PM Sharif in hot seat over free speech (Nikkei)
Profile: Pakistan’s new finance minister Muhammad Aurangzeb (Hindustan Times)
China goes big on Laos power projects, boosting Southeast Asian sway (Nikkei)
Cambodia to divert Mekong trade via China-built canal, vexing Vietnam (Nikkei)
Tajikistan dismisses doubts in hydropower push (Radio Free Europe)
First cargo containers delivered from China via Kazakhstan reach Azerbaijan (Radio Free Europe)
Azerbaijan oil and gas extraction plans are equivalent to an entire year of EU emissions (Offshore Technology)
Saudi wealth fund eyes bond sales, IPOs to finance spending ambitions (Bloomberg)
Inside Saudi Arabia’s plan to dominate mining (Semafor)
Amazon leads firms investing $10b in Saudi data centers (Bloomberg)
Iran’s 2024 outlook: Hyperinflation and currency fluctuations weigh on consumption (FrontierView)
China, Iran and Russia stage joint naval drills in Gulf of Oman (Al Jazeera)
Japan and Oman to mass produce e-methane in decarbonization push (Nikkei)
US approves $500m for Bahrain oil project, despite opposition (NYT)
Turkey proves no safe haven for Central Asian activists (Radio Free Europe)
Hungary’s Orbán takes cue from Putin in repressing dissent (FT)
Chinese firm’s trail of debt and labor exploitation in Serbia (BalkanInsight)
Serbia hides arms exports to Israel after Hamas attack (BalkanInsight)
Haiti’s prime minister Ariel Henry resigns as law and order collapses (BBC)
Kenya’s government suspends Haiti police deployment (AP)
Venezuela to strengthen Iran oil pact (Offshore Technology)
BP Partners With Venezuela on Trinidad Gas Field (Oilprice.com)
Paraguay strikes deal with FBI to tackle organized crime (Mercopress)
Emerging market ETFs chalk up new record inflows in February (FT)
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